Parents, be careful how you act around your children. Children may listen to what you say, but they'll be more influenced by what you do.
This maxim also appears to apply to attitudes toward debt. According to a study recently released by the National Bureau of Economic Research (NBER), children have a strong tendency to follow their parents' attitudes about debt.
The study, which took place in Sweden, found a strong correlation between the attitudes of children and parents regarding debt – although the study also found attitudes to be changing over time. While 56% of respondents claimed to be uncomfortable with debt, 62% said their parents feel uncomfortable with debt.
Women were more uncomfortable with debt than men in both generations, yet both men and women were more likely to discuss their financial situation with their mothers instead of their fathers. Consequently, the correlation for transmitting debt philosophies to children was greater for women than for men.
Parental correlation with debt habits isn't just for Swedes. A T. Rowe Price survey from 2017 found that parents who don't handle money well pass those bad habits on to their children.
How do you keep from passing bad financial habits on to your children? It's difficult to do without recognizing your own bad habits and correcting them first. Words will ring hollow about saving money and controlling spending if you can't do it yourself.Start with a budget and add the willpower to stick to it. Your children will take note.
How do you pass good habits down to your children? Talk to them early about the value of money and how to handle it properly – and then allow them to manage their own money. Kids learn that when they overspend they don't have money available for something they really want in the future.
Start your children's financial education early. Recent research from the University of Michigan shows that even among five- to ten-year-old children, emotional responses to saving and spending are good predictors of real-life spending behaviors. See how your child handles money at an early age, when the stakes are low. You may be able to correct bad habits early.
Make sure your kids understand the concept of credit before they're ready to get their own card and make charges on their own. College is a great environment for learning many things, but responsible use of credit isn't one of them.
If you're having trouble with debt as an adult, how do you reverse course? We don't really suggest blaming your parents for a loose attitude toward debt. Your reasons for racking up debt don't matter. The only thing that matters is your readiness to change your attitude and get serious about fiscal responsibility.
Start by tracking your income and expenses and creating a realistic budget. If debt reduction is your goal, monthly spending must be less than income. You need a surplus at the end of the month to pay down debt balances.
Typically, it's best to attack your highest interest rate debt first – which is usually credit card debt. However, if you need a boost of momentum to keep your debt reduction philosophy moving forward, try paying off the smallest debt first. Build on every positive milestone.
If you're okay with racking up debt, that's your decision. Don't expect your parents to bail you out. Blaming them for your problems won't help – and, according to the NBER study, there's a decent chance they have the same problems with debt that you do.
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.